Morning Reads

Todays Open Interest Change




As investing trends come in and out of fashion, it can be difficult to navigate what is real and will power the future, and what is hype and will eventually fade. Trading companies that are in the thick of the trends can also be tricky, especially when trying to recognize value ahead of the broader market and appraising how the given technology will play out. Others that are looking for a quick buck might want to jump on the train in any event, even if it's for a quick ride, though the short-term strategy can quickly leave a bag holder with a screen full of red at the end of a big run-up on a stock price.

Enter Nvidia: The company, a leader in artificial intelligence hardware and software, saw its shares soar 24.6% to $380 in AH trading on Wednesday, bringing its YTD gain to over 160%. The latest movement came after the firm posted Q1 results that topped expectations and blew away forecasts for the upcoming period. "Demand [related to generative AI and large language models] has extended our data center visibility out a few quarters and we have procured substantially higher supply for the second half of the year," Nvidia (NASDAQ:NVDA) executives said on an earnings call. "The easiest way to think about that is over the next four or five, 10 years, most of that trillion dollars, and compensating adjusting for all the growth in data center still, it will be largely generative AI."

In fact, Nvidia is indicated to open today with a market-cap gain of more than $185B, making it worth more than Meta (META) or Tesla (TSLA), and it might even turn into the biggest single-day record (Apple (AAPL) rose by $191B in November 2022). Peers are riding the sentiment higher, such as rival chipmaker Advanced Micro Devices (NASDAQ:AMD) +8.5%, AI software maker (NYSE:AI) +9.3% and Palantir (NYSE:PLTR) +7.7%. Bigger players like Microsoft (MSFT) and Alphabet (GOOGGOOGL), which are incorporating generative AI into their platforms, rose as well, while the AI rally sent Nasdaq futures up nearly 2% overnight.

But... the jury is still out on artificial intelligence. There's no doubt that companies are on the brink of something big, and that it will change many industries and how we do things, but it's important to separate hype from reality when talking about any emerging technology. Remember the Internet of Things? Web 3.0? The metaverse? DeFi, blockchain, and NFTs? Many shares related to companies operating in these spaces have seen their prices dwindle from the record highs seen when the news cycle was first played up. Contrast that to smartphones, streaming, e-commerce and the cloud, which have had much more lasting impacts on business investment, the labor market and broader economy.

From the comments section: "[NVDA's] $6B rev and $2B in researching and development. That's how to build the future. Incredible stock," writes SA premium user ErikInvest, while chris hafferty adds "AI is as significant as the commercialization of electricity!" Raph86 counters that "from the COVID everything bubble right to the AI bubble... Market demands more of the sweet stuff!" in SA article, Nvidia Fiscal Q1 2024 Earnings: Solid Beat, But Hedge Your Bets. "The valuation does NOT have to be justified," replies Natturner1966. "It's the stock market, not a college finance class." (22 comments)

On negative watch

The United States is in danger of losing Fitch's top sovereign debt status due to "increased political partisanship that is hindering reaching a resolution to raise or suspend the debt limit." The "AAA" long-term foreign currency issuer default rating was placed on Rating Watch Negative, though Fitch still expects a resolution before the so-called "X-date," which can impact the U.S. Dollar Index (DXY). Recall that in 2011, the U.S. lost its top rating at S&P, as the government approached default in a similar standoff. S&P has not restored the country to its highest rating, but the last of the Big Three credit rating agencies, Moody's, still has its highest "Aaa" ranking on the U.S. (42 comments)

Here comes the sun

Solar is emerging as an energy superpower with this year's global investment in the sector ($380B) set to surpass spending on oil production ($370B) for the first time. That's according to Fatih Birol, executive director of the International Energy Agency, who said the development "will soon start to see a very different energy system emerging and we can keep the 1.5C goal alive." The change is a result of strong subsidies and tax credits like the Inflation Reduction Act, as well as policy alignment among nations towards climate and energy security, and better economics of alternative power sources. "Clean energy is moving fast, faster than many people realize," Birol added. "For every dollar invested in fossil fuels, about $1.7 are now going into clean energy. Five years ago, this ratio was 1:1." (9 comments)

Pause in June?

Almost all Federal Reserve officials at the FOMC's May 2-3 meeting said downside risks to growth and upside risks to unemployment had increased due to banking stresses, according to the minutes published from the gathering. Participants "generally expressed uncertainty about how much more policy tightening may be appropriate," while some noted that additional "policy firming would likely be warranted at future meetings." That means the bank is still divided on whether to continue raising interest rates, especially if progress in bringing down inflation to the Fed's 2% target remains "unacceptably slow." The policymaking committee in May increased its key rate by 25 bps to a range of 5.00%-5.25%, representing its 10th straight rate hike, while odds rose of the Fed pausing in June following the release of the minutes. (56 comments)

Today's Markets

In Asia, Japan +0.4%. Hong Kong -1.9%. China -0.1%. India +0.2%.
In Europe, at midday, London -0.3%. Paris -0.3%. Frankfurt -0.2%.
Futures at 6:30, Dow -0.2%. S&P +0.6%. Nasdaq +1.9%. Crude -1.9% to $72.95. Gold -0.1% to $1963.50. Bitcoin -1.7% to $26,256.
Ten-year Treasury Yield +4 bps to 3.76%

Today's Economic Calendar

8:30 GDP Q1
8:30 Initial Jobless Claims
8:30 Chicago Fed National Activity Index
8:30 Corporate profits
9:50 Fed's Barkin Speech
10:00 Pending Home Sales
10:30 EIA Natural Gas Inventory
11:00 Kansas City Fed Mfg Survey
1:00 PM Results of $35B, 7-Year Note Auction
4:30 PM Fed Balance Sheet

Companies reporting earnings today »

What else is happening...

Final GDP data shows Europe's largest economy entered recession.

Microsoft (MSFT) says Chinese hackers attacked 'critical' infrastructure.

Meta Platforms (META) wraps up spring layoffs, deepest in tech.

The implications of Apple's (AAPLdeal with Broadcom (AVGO).

Snowflake (SNOW) plunges as lowered forecast outweighs Q1 results.

Kohl's (KSS) pops on earnings topper, reaffirms guidance.

FTC is probing bidding collusion for these baby-formula makers.

Breakthrough innovation: Nike (NKE) reshuffles C-suite responsibilities.

Icahn Enterprises (IEP) continues slide as Ackman fans the flames.

Google (GOOGL) and European Commission to develop AI governing pact.

Known to most as Uranium Pinto Beans, Jason has more than 15 years under his belt of trading stocks, options and currencies. His expertise primarily lies in chart analysis, and he has a strong eye for undervalued stock. Because he’s got the ability to identify great risk/reward trades he usually enjoys taking the path less traveled and reaping the benefits from the adventure.

He is a co-founder of Option Millionaires, and he is best known for his weekly webinars with Scott, as well as his high level training webinars and charts found in the forums.

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